Friday, 12 October 2018

Global markets plunge with investor sentiment as they face “perfect storm”

Markets fell on Thursday.

The S&P 500 tumbled 2.1 percent, the STOXX Europe 600 fell 2.0 percent and the Nikkei 225 plunged 3.9 percent.

“It is becoming clear that global equity markets are facing a perfect storm of headwinds such as rising U.S. bond yields, U.S.-China trade disputes, global growth concerns and prospects of higher U.S. interest rates,” said Lukman Otunuga, research analyst at FXTM.

Charlie Ripley, senior investment strategist for Allianz Investment Management, said that “we are witnessing the repercussions in the markets as the Fed takes the punch bowl away from the party”.

Markets are falling as individual investors grow bearish. The latest AAII survey showed that 30.6 percent of individual investors described themselves as bulls, down by a steep 15.1 percentage points from the previous week, while bearish investors rose by 10.3 percentage points to 35.5 percent.

Mark Yusko, founder and chief investment officer at Morgan Creek Capital, said that stocks would have to fall 40 to 50 percent to reach fair value.

“If interest rates keep normalizing, if liquidity keeps falling, if earnings go to where I think they are going to go, which is lower, I think we are going to have a meaningful correction,” he said.

However, Jim Paulsen, chief investment strategist at The Leuthold Group, is not convinced that this is the start of a bear market and suggested that “maybe in the not too much distant future it might be time to get aggressive again for one last run in this bull”.

Indeed, Jeffrey Hirsch, editor-in-chief of Stock Traders Almanac, noted that Octobers have also been a time of turnaround. “Midterm election years Octobers are downright stellar thanks to the major turnarounds," said Hirsch.

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